PART XVADJUSTMENTS TO THE DEDUCTION OF INPUT TAXON CAPITAL ITEMS
Method of adjustment115.
—
(1)
Where in a subsequent interval applicable to a capital item, the extent to which it is used in making taxable supplies increases from the extent to which it was so used F1or to be used at the time that the original entitlement to deduction of the input tax was determined, the owner may deduct for that subsequent interval an amount calculated as follows—
(a)
where the capital item falls within regulation 114(3)(a) or (b)—
(b)
where the capital item falls within regulation 114(3)(c)—
(2)
Where in a subsequent interval applicable to a capital item, the extent to which it is used in making taxable supplies decreases from the extent to which it was so used F2or to be used at the time that the original entitlement to deduction of the input tax was determined, the owner shall pay to the Commissioners for that subsequent interval an amount calculated in the manner described in paragraph (1) above.
(3)
Where the whole of the owner’s interest in a capital item is supplied by him, or the owner is deemed or, but for the fact that the VAT on the deemed supply (whether by virtue of its value or because it is zero-rated or exempt) would have been not more than F3the sum specified in paragraph 8(1) of Schedule 4 to the Act, would have been deemed to supply a capital item F4pursuant to that paragraph during an interval other than the last interval applicable to the capital item, then if the supply (or deemed supply) of the capital item is—
(a)
a taxable supply, the owner shall be treated as using the capital item for each of the remaining complete intervals applicable to it wholly in making taxable supplies, or
(b)
an exempt supply, the owner shall be treated as not using the capital item for any of the remaining complete intervals applicable to it in making any taxable supplies,
and the owner shall F5, except where paragraph (3A) below applies, calculate for each of the remaining complete intervals applicable to it, in accordance with paragraph (1) or (2) above, as the case may require, such amount as he may deduct or such amount as he shall be liable to pay to the Commissioners,
provided that the aggregate of the amounts that he may deduct in relation to a capital item pursuant to this paragraph shall not exceed the output tax chargeable by him on the supply of that capital item.
F6(3A)
This paragraph applies if the total amount of input tax deducted or deductible by the owner of a capital item as a result of the initial deduction, any adjustments made under paragraph (1) or (2) above and the adjustment which would apart from this paragraph fall to be made under paragraph (3) above would exceed the output tax chargeable by him on the supply of that capital item.
(3B)
Save as the Commissioners may otherwise allow, where paragraph (3A) above applies the owner may deduct, or as the case may require, shall pay to the Commissioners such amount as results in the total amount of input tax deducted or deductible being equal to the output tax chargeable by him on the supply of the capital item.
(4)
If a capital item is—
(a)
irretrievably lost or stolen or is totally destroyed, or
(b)
is of a kind falling within regulation 114(3)(b) and the interest in question expires,
during the period of adjustment applicable to it, no further adjustment shall be made in respect of any remaining complete intervals applicable to it.
(5)
For the purposes of this regulation—
F7“the original entitlement to deduction” means the entitlement to deduction determined in accordance with Part XIV of these Regulations;
“the total input tax on the capital item” means, in relation to a capital item falling within—
- (a)
regulation 113(a) or (b), the VAT charged on the supply to, or on the importation or acquisition by, the owner of the capital item, other than VAT charged on rent F8(including charges reserved as rent) which is neither payable nor paid more than 12 months in advance nor invoiced for a period in excess of 12 months (if any),
- (b)
regulation 113(c) or (d), the VAT charged on the supply which the owner is treated as making to himself under paragraph 1(5) or 6(1) of Schedule 10 to the Act, as the case may require,
- (c)
regulation 113F9(e), (f), (g) or (h), the aggregate of the VAT charged on the supplies described in regulation 113F9(e), (f), (g) or (h), as the case may require, other than VAT charged on rent (if any),
and shall include, in relation to any capital item, any VAT treated as input tax under regulation 111 which relates to the capital item, other than such VAT charged on rent (if any); and for the purposes of this paragraph references to the owner shall be construed as references to the person who incurred the total input tax on the capital item;
- (a)
“the adjustment percentage” means the difference (if any) between the extent, expressed as a percentage, to which the capital item F10was used or to be used for the making of taxable supplies at the time the original entitlement to deduction of the input tax was determined, and the extent to which it is so used or is treated under paragraph (3) above as being so used in the subsequent interval in question.
(6)
F11Subject to paragraph (8) below a taxable person claiming any amount pursuant to paragraph (1) above, or liable to pay any amount pursuant to paragraph (2) above, shall include such amount in a return for the second prescribed accounting period next following the interval to which that amount relates, except where the Commissioners allow another return to be used for this purpose,
provided that where an interval has come to an end under F12regulation 114(5A)—
(a)
F13... because the owner of the capital item has ceased to be a member of a group under section 43 of the Act, any amount claimable from the Commissioners or payable to them (as the case may be) in respect of that interval shall be included in a return for that group for the second prescribed accounting period after the end of the tax year of the group in which the interval in question fell, or
(b)
F14... because the owner has transferred part of his business as a going concern, and he remains a registered person after the transfer, any amount claimable from the Commissioners or payable to them (as the case may be) in respect of that interval shall be included in a return by him for the second prescribed accounting period after the end of his tax year in which the interval in question fell,
except where the Commissioners allow another return to be used for this purpose.
(7)
F15Subject to paragraph (8) below a taxable person claiming any amount or amounts, or liable to pay any amount or amounts, pursuant to paragraph (3) above, shall include such amount or amounts in a return for the second prescribed accounting period next following the interval in which the supply (or deemed supply) in question takes place except where the Commissioners allow another return to be used for this purpose.
F16(8)
The Commissioners shall not allow the taxable person to use a return other than that specified in paragraph (6) above, paragraph (a) or (b) of that paragraph or paragraph (7) above (in each case, “the specified return”), as the case may be, unless it is the return for a prescribed accounting period commencing within 3 years of the end of the prescribed accounting period to which the specified return relates.